Indaptus Therapeutics(INDP) - 2022 Q4 - Annual Report

Part I Business Overview Indaptus Therapeutics is a clinical-stage biotechnology company developing a novel, patented systemic anti-cancer and antiviral immunotherapy based on attenuated and inactivated Gram-negative bacteria, with its lead candidate Decoy20 initiating Phase I clinical trials in December 2022 - The company focuses on developing a novel, patented systemic anti-cancer and antiviral immunotherapy based on attenuated and inactivated Gram-negative bacteria[22][27] - The technology has demonstrated broad anti-tumor and antiviral activity in preclinical models, including synergistic effects with five different existing drugs such as checkpoint therapies, targeted antibody therapies, and low-dose chemotherapy[22][33] - In May 2022, the U.S. FDA approved the IND application for its lead clinical candidate Decoy20's Phase I clinical trial, which commenced in December 2022 for patients with advanced solid tumors[23][38] - The company holds an extensive patent portfolio with 34 granted patents and 16 pending applications as of March 1, 2023, with patent terms expected between 2033 and 2039[24][85] Overview Background Our Approach Results Business Strategy Competitive Advantages Governmental Regulation U.S. Regulation of Drugs and Biologics Expedited Development and Review Programs Post-Approval Requirements Drug Product Marketing Exclusivity Biosimilars and Reference Product Exclusivity Other Healthcare Laws Coverage and Reimbursement Healthcare Reform Data Privacy and Security Laws Competition Intellectual Property Patents Trade Secrets and Confidential Information Environmental Matters Human Capital Management Historical Background and Corporate Structure Available Information Risk Factors The company faces significant risks including lack of profitability, substantial future funding needs, uncertain clinical trial outcomes, potential adverse side effects, reliance on third parties, market acceptance challenges, intellectual property protection, and regulatory compliance - The company is a clinical-stage entity, not yet profitable, and anticipates continued losses, with accumulated deficit of approximately $30 million as of December 31, 2022[104][105][106] - The company lacks cash flow and requires additional capital, otherwise it may be forced to delay, limit, or cancel some or all of its research, development, and commercialization efforts[107][108] - The clinical and preclinical development process is lengthy, expensive, and uncertain, where any difficulties or delays could increase costs and impact revenue generation capabilities[115][117] - Product candidates may cause adverse side effects, which could delay or prevent regulatory approval or commercialization, or otherwise have a significant adverse impact on the business[128][130] - The company relies on third parties for preclinical studies, clinical trials, and product manufacturing, and failure of these third parties to perform their duties could hinder regulatory approval or commercialization[157][162] - The commercial success of Decoy20 or any future product candidates depends on their market acceptance among physicians, patients, healthcare payers, and the medical community[154] - The company faces intense competition from rivals with greater financial resources and expertise, which could harm its product commercialization opportunities[190][191] - The company relies on intellectual property protection, such as patents and trade secrets, for its proprietary technology, but may not be able to adequately protect it or may face risks of infringing on others' intellectual property[199][200][208] - The company is subject to U.S. federal, state, and foreign healthcare laws and regulations, and non-compliance could lead to increased compliance costs and harm operating results and financial condition[225][226] - The COVID-19 pandemic and unfavorable global economic conditions may significantly adversely affect the company's business and operations, including supply chain disruptions, clinical trial delays, and limited financing capabilities[232][257] - The market price of the company's common stock is highly volatile, and investors may suffer a complete loss of their investment[240][241] Risks Related to Our Financial Position and Capital Requirements Risks Related to the Discovery and Development of Our Product Candidates Risks Related to Our Dependence on Third Parties Risks Related to Commercialization Risks Related to Competition, Retaining Key Employees and Managing Growth Risks Related to Our Intellectual Property Risks Related to Healthcare Laws and Other Legal Compliance Matters Other Risks Related to Our Business Risks Related to Our Common Stock General Risk Factors Unresolved Staff Comments The company has not received any unresolved comments from the U.S. Securities and Exchange Commission staff - The company has not received any unresolved comments from the SEC staff[260] Properties The company maintains its principal executive offices in New York City and leases approximately 2,000 square feet of office space in San Diego, deemed sufficient for current needs - The company's principal executive offices are located at 3 Columbus Circle, New York, New York, and it leases approximately 2,000 square feet of office space in San Diego, California, with a lease term until October 31, 2023[261] Legal Proceedings The company resolved an arbitration claim from LTS Lohmann Therapie Systeme AG for 2 million Euros related to the former Accordion Pill business, settling for 800,000 Euros (approximately $860,000) in February 2023, with no other material legal proceedings pending - In July 2022, LTS Lohmann Therapie Systeme AG initiated arbitration against the company's subsidiary Intec Israel, demanding payment of 2 million Euros[263] - Intec Israel has paid approximately 1 million Euros and settled the dispute with LTS on February 7, 2023, for 800,000 Euros (approximately $860,000)[263][382] - As of March 17, 2023, the company has no other material pending legal proceedings or claims[264] Mine Safety Disclosures This item is not applicable - This item is not applicable[265] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock began trading on Nasdaq Capital Market under 'INDP' on August 4, 2021, with 7 registered holders as of March 17, 2023, and no cash dividends have been declared or paid - The company's common stock was listed on the Nasdaq Capital Market on August 4, 2021, under the ticker symbol 'INDP'[268] - As of March 17, 2023, the company had 7 registered holders of common stock[269] - The company has never declared or paid cash dividends and plans to reinvest future earnings into business development[270] - The company did not repurchase any equity securities in 2022[273] Market Information Holders Dividend Policy Securities Authorized for Issuance under Equity Compensation Plans Recent Sales of Unregistered Securities Purchases of Equity Securities by the Issuer and Affiliated Purchasers Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations As a clinical-stage biotech, the company saw increased operating and net losses in 2022 driven by R&D and G&A expenses, holding $26.4 million in cash and marketable securities by year-end, projected to fund operations until Q2 2024, while facing ongoing financing needs and macroeconomic uncertainties - The company is a clinical-stage biotechnology company focused on developing novel anti-cancer and antiviral immunotherapies[276] - The COVID-19 pandemic and macroeconomic conditions, such as supply chain constraints, inflation, and rising interest rates, may adversely affect the company's operations, financing capabilities, and clinical trial progress[277] - On August 3, 2021, the company completed its merger with Decoy Biosystems, Inc., and was renamed Indaptus Therapeutics, Inc., with its common stock listed on the Nasdaq Capital Market[278][280] - In December 2022, the company entered into an equity purchase agreement with Lincoln Park Capital Fund, LLC, granting it the right to sell up to $20 million of its common stock over 36 months[281] Comparison of Operating Results for 2022 and 2021 | Metric | Year Ended December 31, 2022 ($) | Year Ended December 31, 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :---------- | :------- | | Research and development expenses | $6,324,657 | $2,523,153 | $3,801,504 | 150% | | General and administrative expenses | $8,586,249 | $5,205,955 | $3,380,294 | 65% | | Total operating expenses | $14,910,906 | $7,729,108 | $7,181,798 | 93% | | Operating loss | $(14,910,906) | $(7,729,108) | $(7,181,798) | 93% | | Other income, net | $588,108 | $17,722 | $570,386 | 3,218% | | Net loss | $(14,322,798) | $(7,711,386) | $(6,611,412) | 86% | | Net loss per share, basic and diluted ($) | $(1.73) | $(1.89) | $0.16 | (8.5)% | | Weighted average shares outstanding | 8,262,119 | 4,090,599 | | | - Research and development expenses increased by 150% to approximately $6.3 million in 2022, primarily due to increased costs for Phase I clinical trials and manufacturing processes, as well as higher salaries and related expenses[292] - General and administrative expenses increased by 65% to approximately $8.6 million in 2022, mainly due to higher salaries and related expenses from increased executive team personnel, and increased insurance and professional service fees incurred as a public company[294] - As of December 31, 2022, the company held approximately $26.4 million in cash, cash equivalents, and marketable securities, projected to support operations until the second quarter of 2024[300][305] Comparison of Cash Flows for 2022 and 2021 | Cash Flow Category | 2022 ($) | 2021 ($) | | :------------- | :------------------- | :------------------- | | Net cash used in operating activities | $(13,078,347) | $(11,290,535) | | Net cash (used in) provided by investing activities | $(16,427,018) | $447,746 | | Net cash provided by financing activities | $0 | $48,337,455 | | Net (decrease) increase in cash and cash equivalents | $(29,505,365) | $37,494,666 | | Cash and cash equivalents at end of period | $9,626,800 | $39,132,165 | Overview Impact of the COVID-19 Pandemic and Macroeconomic Conditions on our Operations Decoy Merger Recent Events Lincoln Park Committed Equity Facility Components of Operating Results Research and Development Expenses General and Administrative Expenses Other Income, Net Results of Operations Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Liquidity and Resources Cash Flows Operating Activities Investing Activities Financing Activities Funding Requirements Contractual Obligations Critical Accounting Policies Accounting for Research and Development Costs Stock-Based Compensation Recently Issued Accounting Pronouncements Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing the information required by this item under SEC rules - As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk[316] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the years ended December 31, 2022 and 2021, including balance sheets, statements of operations, stockholders' equity, and cash flows, with an unqualified opinion from Haskell & White LLP - Independent registered public accounting firm Haskell & White LLP issued an unqualified opinion on the company's consolidated financial statements for the years ended December 31, 2022 and 2021[320] Consolidated Balance Sheet Summary (As of December 31) | Metric | 2022 ($) | 2021 ($) | | :----------------------- | :---------- | :---------- | | Assets | | | | Cash and cash equivalents | $9,626,800 | $39,132,165 | | Marketable securities | $16,806,009 | - | | Total assets | $28,063,806 | $40,576,583 | | Liabilities and Stockholders' Equity | | | | Total liabilities | $3,433,341 | $4,677,003 | | Total stockholders' equity | $24,630,465 | $35,899,580 | | Accumulated deficit | $(29,993,685) | $(15,670,887) | Consolidated Statements of Operations and Comprehensive Loss Summary (As of December 31) | Metric | 2022 ($) | 2021 ($) | | :----------------------- | :---------- | :---------- | | Research and development expenses | $6,324,657 | $2,523,153 | | General and administrative expenses | $8,586,249 | $5,205,955 | | Operating loss | $(14,910,906) | $(7,729,108) | | Net loss | $(14,322,798) | $(7,711,386) | | Net loss per share, basic and diluted ($) | $(1.73) | $(1.89) | | Comprehensive loss | $(14,226,364) | $(7,711,386) | Consolidated Cash Flow Statement Summary (As of December 31) | Cash Flow Category | 2022 ($) | 2021 ($) | | :------------- | :---------- | :---------- | | Net cash used in operating activities | $(13,078,347) | $(11,290,535) | | Net cash (used in) provided by investing activities | $(16,427,018) | $447,746 | | Net cash provided by financing activities | $0 | $48,337,455 | | Cash and cash equivalents at end of period | $9,626,800 | $39,132,165 | - The company's accumulated deficit was approximately $30 million as of December 31, 2022, with anticipated future losses requiring additional financing[338] - As of December 31, 2022, the company had U.S. federal and state net operating loss (NOL) carryforwards of $19.9 million and $7.5 million, respectively, and an Israeli NOL carryforward of $198 million[392] Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements NOTE 1: GENERAL NOTE 2: SIGNIFICANT ACCOUNTING POLICIES NOTE 3: MARKETABLE SECURITIES NOTE 4: PREPAID EXPENSES AND OTHER CURRENT ASSETS NOTE 5: ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES NOTE 6: STOCK-BASED COMPENSATION NOTE 7: CAPITALIZATION NOTE 8: COMMITMENTS AND CONTINGENCIES NOTE 9: INCOME TAXES NOTE 10: SUBSEQUENT EVENTS Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company states there have been no changes in accountants or disagreements with accountants on accounting and financial disclosure - The company states there have been no changes in accountants or disagreements with accountants on accounting or financial disclosure[398] Controls and Procedures Management assessed disclosure controls and internal control over financial reporting as effective at a reasonable assurance level as of December 31, 2022, with no independent auditor attestation report included due to the company's smaller reporting company status - As of December 31, 2022, the company's management assessed and determined its disclosure controls and procedures were effective at a reasonable assurance level[400] - Management also concluded that the company's internal control over financial reporting was effective as of December 31, 2022[402] - This annual report does not include an attestation report from the independent registered public accounting firm regarding the effectiveness of internal control, as the company qualifies for the smaller reporting company exemption[403] - No significant changes in internal control occurred during the quarter ended December 31, 2022[404] Other Information No other information is disclosed under this item - No other information is disclosed under this item[405] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - This item is not applicable[406] Part III Directors, Executive Officers and Corporate Governance This section provides information on the company's executive officers and directors as of March 17, 2023, including key leadership roles and the board composition, alongside the established Code of Business Conduct and Ethics applicable to all personnel Executive Officers and Directors (As of March 17, 2023) | Name | Age | Position | | :---------------------- | :--- | :-------------------------------- | | Executive Officers | | | | Jeffrey A. Meckler | 56 | Chief Executive Officer and Director | | Michael J. Newman, Ph.D. | 67 | Chief Scientific Officer and Director | | Nir Sassi | 47 | Chief Financial Officer | | Walt A. Linscott, Esq. | 62 | Chief Business Officer | | Non-Executive Directors | | | | Dr. Roger J. Pomerantz | 66 | Chairman of the Board | | Hila Karah | 54 | Director | | Anthony J. Maddaluna | 70 | Director | | William B. Hayes | 57 | Director | | Mark J. Gilbert, M.D. | 62 | Director | | Brian O'Callaghan | 63 | Director | | Robert E. Martell, M.D., Ph.D. | 60 | Director | - The company has adopted a Code of Business Conduct and Ethics applicable to all directors, executive officers, and employees, which is publicly available on its website[423] Executive Officers Non-Employee Directors Code of Business Conduct and Ethics Executive Compensation The information required by this item will be included by reference in the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Executive compensation information will be included in the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[425] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 31, 2022, the company had 1,672,873 options, warrants, and rights exercisable under the 2021 Equity Incentive Plan with a weighted-average exercise price of $13.01, which includes an evergreen provision for annual share increases Securities Authorized for Issuance under Equity Compensation Plans (As of December 31, 2022) | Plan Category | Number of Securities Underlying Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Equity compensation plans approved by security holders | 1,672,873 | $13.01 | 314,494 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 1,672,873 | $13.01 | 314,494 | - The 2021 Plan includes an evergreen provision allowing for an annual increase in the number of shares available for issuance, equal to 3% of the total common stock outstanding at the end of the prior fiscal year or a lesser amount determined by the Board[426] Certain Relationships and Related Transactions, and Director Independence The information required by this item will be included by reference in the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information on certain relationships and related transactions, and director independence will be included in the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[428] Principal Accountant Fees and Services The information required by this item will be included by reference in the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information on principal accountant fees and services will be included in the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[429] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits included in this annual report, with financial statements detailed in Item 8 and schedules omitted due to inapplicability or prior presentation, and an exhibit list detailing corporate documents - Financial statements are presented in 'Item 8. Financial Statements and Supplementary Data'[430] - Financial statement schedules are omitted as they are not applicable or the required information is presented in the financial statements[431] - The exhibit list includes important documents such as the company's certificate of incorporation, merger agreement, equity incentive plans, employment agreements, and securities purchase agreements[432][435] Financial Statements Financial Statement Schedules Exhibits Form 10-K Summary This annual report does not include a Form 10-K summary - This annual report does not include a Form 10-K summary[436]